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- Raul Santos made two time deposits (P500,000 in OBM and P200,000 in OBM)
- Raul Santos applied of a loan worth P700,000 at PNB
- Raul Santos issued deed of assignment of the time deposits in OBM in favor of PNB
- The loan became due and OBM did not pay the amount of the time deposits
- PNB demanded payment from both OBM and Raul Santos
- Raul Santos claims obligation is extinguished because of the irrevocable deed of
assignment on his time deposits
- OBM initially claimed the time deposit was not entered in their book
- OBM claimed it was not liable for obligations because of insolvency
Are Raul Santos and OBM liable to pay PNB for loan and interest?
While it is true that under Article 1956 of the Civil Code no interest shall be due
unless it has been expressly stipulated in writing, this applies only to interest for the
use of money. It does not comprehend interest paid as damages. 19 OBM contends
that it had agreed to pay interest only up to the dates of maturity of the certificates
of time deposit and that respondent Santos is not entitled to interest after the
maturity dates had expired, unless the contracts are renewed. This is true with
respect to the stipulated interest, but the obligations consisting as they did in the
payment of money, under Article 1108 of the Civil Code he has the right to recover
damages resulting from the default of OBM and the measure of such damages is
interest at the legal rate of six percent (6%) per annum on the amounts due and
unpaid at the expiration of the periods respectively provided in the contracts. In
fine, OBM is being required to pay such interest, not as interest income stipulated in
the certificates of time deposit, but as damages for failure and delay in the payment
of its obligations which thereby compelled IRC and Santos to resort to the courts.
The applicable rule is that legal interest, in the nature of damages for noncompliance with an obligation to pay a sum of money, is recoverable from the date
judicial or extra-judicial demand is made, 20 Which latter mode of demand was
made by PNB, after the maturity of the certificates of time deposit, on March 1,
1968. 21 The measure of such damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon in the certificates of deposit 22

Which is six and onehalf percent (6-1/2%). Such interest due or accrued shall further
earn legal interest from the time of judicial demand. 23

Interest presented is only for non compliance with payment

Bataan Seedling Assoc vs Republic

- Bataan Seedling Assoc entered into agreement with DENR to reforest 50 hectares
of land
- DENR already made initial payment of P75,000 as mobilization fund
- One year later a DENR sought to cancel the agreement after deeming BSA did not
comply with agreement
- DENR unilaterally cancelled the agreement
- DENR demanded the return of P56,000 monetary fund.
- Regional Trial Court ordered P50,000 paid to the government as exemplary
damages but did not order the return of the monetary fund
- Both parties appealed
- On appeal the court ordered the balance of the mobilization fund be returned with
12% interest

Whether or not the order to return the P56,000 with 12% interest is correct

12% is incorrect.
12% per annum is imposed if there is no stipulation in the contract.

The amount was supposed to be returned anyway based o the agreement. It was
neither loan nor forbearance of money. Correct interest is at 6% per annum.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on Damages of the Civil Code govern in determining
the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,

this interim period being deemed to be by then an equivalent to a forbearance of

credit. [25]

Catungal vs Hao

Aniana Galang was the original owner of a three storey building

Galang leased said building to BPI
BPI subleased the ground floor to Doris Hao
Galang sold the building to spouses Catungal
After end of lease of Hao, spouses Catungal evicted Hao
Hao refused to leave
Catungal filed a case for ejectment at MeTC
MeTC ordered Hao to vacate the premises or pay P20,000 every month until
she vacates it
Catungal asked that the rate of P20,000 for the first floor and P10,000 for the
second and third floors be applied
MeTC amended judgement.
Ruling appealed to RTC.
RTC affirmed
CA lowered the amount to P8,000 for ground floor, P5,000 for 2 nd and 3rd floor.

Should the award of back-rentals be entitled to interest?

Yes. Supreme court ruled that back rentals in this case are a n equivalent ot a loan
or forbearance of money, therefore the interest due is 12% per annum from the
time of extra-judicial demand

Banco Filipino vs CA
-Elsa and Calvin ARcilla secured three loans from Banco Filipino
- On said loans there is an escalation clause which allows Banco Filipino to increase
the rate of interest of said loans, within the limits allowed by law

- Usury Law at the time was 12% max

- Circular No. 494 provided max interest to be 19% per annum
- Skyline Builders Inc through its President Calvin Arcilla secured loans from BPI for
- Banco Filipino issued a Statement of Account to Arcilla on their loan which showed
interest of 17% per annum
- Banco Filipino increased their interest rate unilaterally based on the authority of
the Central Bank Circular
- Arcilla failed to pay amortizations and the bank foreclosed
- Arcilla did not make a demand to recover overpayments of interest

Is the 17% interest valid?
According to PD 1684 a valid escalation caluse must provide 1 that there be an
increase in interest if increased by law or by the Monetary Board and 2 in order for
such stipulation to be valid, it must include a provision for the reduction of the
stipulated interest in the event that the maximum rate of interest is reduced by law
or by the Monetary Board
Because of the lack of a de-escalation clause, the escalation is invalid.

Consolidated Bank and Trust Co. vs CA

-Continental Cement Corp obtained letter of credit from Consolidated Bank
- LoC used to purchase 500,000 liters of bunker fuel oil.
- Continental made a marginal deposit to petitioner
- Trust receipt was executed by Contintal

- Consolidated filed for petition of sum of money claiming Continental failed to turn
over goods or proceeds
- Continental claimed it was simple loan and not trust receipt
- Amount claimed by Consolidated did not consider the marginal deposits
- Consolidated wanted Consolidated to pay interest based on face value of letter of

Should Continental Cememnt be liable to pay for the full face value?
Interest should be computed after factoring in the marginal deposit
It would be onerous to compute interest and other charges based on the face value
of the letter of credit which a bank issued, without first crediting or setting off the
marginal deposit which the borrower paid to it.

Mendoza vs CA

Danilo Mendoza secured loan with PNB for P500,000 and Letter of Credit and
Trust Receipt line for P1-M
Danilo mortgaged his land property as surety of the credit lines
Mortgage contained a clause that interest for mortgage may be subject to
increase within the rates allowed by law
Danilo executed three promissory notes P310,000, P40,000 and P150,000 all
for 12% per annum until paid, which the Bank may at any time without notice
raise within the limits allowed by law
Danilo asked PNB to restructure the loan due to shut down of his end user
Danilo was asked to sign two blank promissory notes as part of the
Upon return the promissory notes bore interest rates of 21% and 18% which
was different from what was agreed upon

Is the increase valid?

Facts show that the bank increased the interest rates on the promissory notes
without the consent of the petitioner. Unilateral determination and imposition of
increased interest rates by a bank is violative of the principle of mutuality of
contracts in Art. 1308 of New Civil Code

First Metro Investment Corporation vs Este Del Sol Mountain


Este de Sol took out a loan from FMIC for P7,385,000

Under loan agreement, 16% interest per annum based on diminishing
Payable in thrity six equal consecutive monthly amortizations
In case of default, an accelation clause among others is provided
Acceleration clause of 20% one time penalty on the amount due and such
amount shall bear interest at the highest rate permitted by law from the date
of default until full payment
Plus liquidated damages at the rate of 2% per mounth compounded quarterly
on the unpaid balance and accrued interests together with all the penalties,
fees, expenses or charges thereon until the unpaid balance is fully paid
Plus attorneys fees equivalent to 25% of the sum sought to be recovered
which in no case shall be less than P20,000 if the lawyer is hired.
Este del Sol executed 1. Real Estate Mortgage over 2 parcels of land 2)
Individual Continuing Suretyship agreements by co respondents
Este del Sol executed as provided for by Loan Agreement, an Underwriting
Agreement whereby FMIC shall underwrite on a best-efforts basis, the public
offering of 120,000 common shares of Este del Sols capital stock for a fee of
Este del Sol will also pay FMIC an additional P200,000 annual supervision fee
for 4 years
Este del Sol will also pay a P332,500 consultancy fee for 4 years
Consultation agreement was executed whereby Este del Sol engages FMIC as
consultant to render general consultancy services
FMIC deducted their fees from the first release of the loan
Este del Sol failed to pay amortizations which amounted to 12,679,630.98
FMIC foreclosed on properties
Este del Sol claimed that Underwriting and Consultancy Agreements were
used to hide a usurious loan agreement

Is the use of other fees to hide a usurious loan agreement allowed?

A loan is usurious when it is intended that additional compensation for the loan be
disguised by an ostensibly unrelated contract for the payment by the borrower for
the lenders services which are of little value or which are not in fact to be rendered.
Article 1957 clearly provides: Contracts and stipulations, under any cloak or device,
whatever intended to circumvent the law against usury shall be void. The borrower
may recover in accordance with the laws on usury.